Why do railroads run intermodal so fast?

[Anonymous]

As a slight variation on the above, here's one of those too-good-to-be-true but by-golly-may-well-be-true riddles.

I've been told that the shipment of stacks trans-Pacific west to east and then U.S. continental west to east (i.e., China and other MFN's sending stuff to U.S. population centers)--that there are fewer stax going back west than were shipped east.

I for one would expect to find EMPTY stax going back home--after all, Intermodals resemble in some ways a unit train for high-margin consumer goods--but supposedly some of the Chinese containers are not exactly built for the ages and the shippers will let the end-users just keep the empties for their own uses.

Any experience of that out there? I am in the meantime keeping my eye peeled for demolition dumpsters that say "K. Line" or "P&O".

al-in-chgo

[Anonymous]

Thanks for setting me straight, Mr. Hemphill.[oops] And I apologize since my coy understatement (" . . . not exactly built for the ages') seems to have implied to you that containers coming from the PRC were jerry-built or of lower quality than those of other lands. It was, indeed, refreshing to hear that all such containers adhere to a recognized international standing. [8D]

I've been looking at shipping-company sites and ancillary sites, and have found the industry to be very gung-ho and have seen some of the friendliest websites around. The Taiwanese Yang Ming Lines (stock symbol YMTD.L; website yml.com.tw); American barge company Tidewater (TDW; tidewater.com); Hawaii-based Alexander & Baldwin (ALEX; alexanderbaldwin.com), which owns Matson; and Bahamian Teekay (TK), to name a few, have come off glorious earnings in 2004, much like the railroads, and offer potent competition[4:-)], if nothing other than plugging into ports that would shorten the transcontinental hauling of freight and limit it to far shorter distances and (maybe) shorter-line RR's. After I had seen about my fifth container train da***hru Rochelle, IL, on the UP, with almost nothing but "Pacer Stacktrain" modules (PACR, and they don't OWN most of the containers, they just apply LOGISTICS to 'em[:O]) -- well, there's something quite interesting going on. [:0]

To my way of thinking, containers come the closest to offering the color, variety and surprise of, say, boxcars in 1970. I'm also amused to see the large number of UPS and Schneider (trucking) heading both ways. Is there an economical deadheading going on, or is UPS shipping live goods toward Chicago (after all, the whole point of this topics is that intermodals, even if rarely super-speedy, can if so desired by consistent).

We've heard so much intelligent talk around the subject. Or, if people want me to, I could inaugurant a new thread about shipping....with due deference to the several experts listening in. [angel]

[e-mail][D)]

[Anonymous]

time sensitive freight, guarrented to be there a certain time

[Anonymous]

QUOTE: Originally posted by smalling_60626

I'm also amused to see the large number of UPS and Schneider (trucking) heading both ways. Is there an economical deadheading going on, or is UPS shipping live goods toward Chicago (after all, the whole point of this topics is that intermodals, even if rarely super-speedy, can if so desired by consistent).

UPS used expedited intermodal, which Schneider has just started using. The idea in both cases is to get a truck transit time out of an intermodal product. The whole process is, in theory, transparent to the customer and reduces costs. Of course Schneider runs a lot of standard intermodal as well (Paper rolls aren't in a big hurry).

[Anonymous]

Well, I've sure seen a lot of TOFC intermodals going thru Rochelle, IL, where a good third of a 100-plus-car train were those orange Schneider TOFC's--not too many boxes, though.

[oltmannd]

Maybe there is a market for faster ships...

http://www.fastshipatlantic.com/index.htm

These guys seem to think so,.

[Anonymous]

QUOTE: Originally posted by oltmannd

Maybe there is a market for faster ships...

http://www.fastshipatlantic.com/index.htm

These guys seem to think so,.

Wouldn't it be ironic if this new maritime technology ends up operating at twice the average speed of today's railroads? If this catches on in coastal shipping it could put coast parallel railroads out of business. Of course, railroaders could just try running trains faster, which would mean shorter trains, which would mean the D&RGW and Milwaukee folks had it right all along......

[Anonymous]

(Why is there no smilie for "Search Me!")

Maybe faster container ships would be a boon, but maybe not. I've been looking at the annual reports for all kinds of maritime companies: those with a granted franchise that also get into real estate like Alexander & Baldwin; successful foreign companies like Dani***ORM; booming Asian companies like Mitsui O.K., which does containers and 'most everything else; and oil-tanker companies.

The consensus seems to be that speed is extremely correlated against cost-efficiency; like railroad Diesel-electrics, it would seem that the turbines driving VLCC's and other huge ships become much less knots-to-whatever efficient when forced to go just a bit faster. While it is true that necessity is the mother of invention, I don't presume that the technology to power much faster transoceanic ships will suddenly pop out of nowhere just because big railways and big shippers would find it more convenient. [:(]

And I must acknowledge the invaluable contributions that shipping and logistics professionals have made along these lines; after reading what I wrote above their attitude is probably, "Tell me something I DON'T know!"
[8D]

[Anonymous]

QUOTE: Originally posted by smalling_60626

(Why is there no smilie for "Search Me!")

Maybe faster container ships would be a boon, but maybe not. I've been looking at the annual reports for all kinds of maritime companies: those with a granted franchise that also get into real estate like Alexander & Baldwin; successful foreign companies like Dani***ORM; booming Asian companies like Mitsui O.K., which does containers and 'most everything else; and oil-tanker companies.

The consensus seems to be that speed is extremely correlated against cost-efficiency; like railroad Diesel-electrics, it would seem that the turbines driving VLCC's and other huge ships become much less knots-to-whatever efficient when forced to go just a bit faster. While it is true that necessity is the mother of invention, I don't presume that the technology to power much faster transoceanic ships will suddenly pop out of nowhere just because big railways and big shippers would find it more convenient. [:(]

And I must acknowledge the invaluable contributions that shipping and logistics professionals have made along these lines; after reading what I wrote above their attitude is probably, "Tell me something I DON'T know!"
[8D]

Containerships may not be all that fast, but they do run as fast as optimal economics allows. (At least they don't spend weeks being shuttled around in a reclassification harbor.[:D]) What the FastShip people are betting on is that if technology allows for faster ships to be successful within a certain cost/benefit pardigm, folks will take advantage of it. What they would pay in higher fees per box might be made up by reduced inventories. If indeed FastShip results in days being taken off the shipping time frame, it could change the entire supply chain dynamic.

[Anonymous]

Given what little I've observed and add to it what I've read on this Topic, and the shipping industry comes across as vibrant, innovative and competitive.[8D]

Would that the Class One's were so spunky! [:(] That's probably the main reason I am anti- any more mergers.

[Anonymous]

People I've talked to about this thread have asked me whether CTC will continue to spread along the main lines, now that it's all-electronic and no longer a matter of relays-and-switches. The reason that might be extra significant for this thread is that CTC would mean easier "meets," and therefore the shorter, more frequent, faster trains that many in this Topic have voice just might be the wave of the future.

I was reading CPR's Annual Report the other day and was surprised to see how little of their routage was under CTC -- less than a third, and they are considered to be a capital-rich, high-techish line with lots of single-track.

How do you readers feel about this stew? Is more CTC the wave of the future and would it have the desired effect of speedier intermodal service?

[Anonymous]

smalling,

It's isn't so much that the concept of shorter more frequent trains is the wave of the future, rather that it really should have been the primary business model for today's railroads. This two pronged approach to business (increasing the cycle of availability of services for customers, and getting the product from point A to point B ASAP) is how a business would normally expand their customer base, thus increasing their accumulation of marginal revenues which then reflect in greater overall profits. But of course the current railroad industry is anything but normal. Having to again rehash another old (but contemporary) argument, this rejection of an ever expanding customer base has it's roots in the monopolistic tendencies inherent in the proprietary closed access rail system. Monopolists' primary directive is to increase profit margins of their captive customers (we'll call it vertical marketing), as opposed to competitive marketeers whose prime directive is to sell to an ever increasing customer base to maintain and expand overall profitability (we'll call that horzontal marketing). If we were living in a fascist dictatorship or a socialist regime, the monopolists would be the primary distributors of goods and services. But we ostensibly live in a free market society, so the competitive marketeers should be the primary distributors of goods and services here in the U.S.

But I digress. The bottom line is this: As long as the railroad system in the U.S. is of the extremely retrenched closed access system, we will not again see the shorter faster train model of the Milwaukee and D&RGW. Rather, we are stuck with the longer, slower trains of diminished customer services. Because that is what economic theory says will happen in a monopolistic business sector.

[Anonymous]

I agree with you, futuremodal, especially the negative consequences of monopolistic systems. But when you draw the inference that "rejection of an ever expanding customer base has its roots in the monopolistic tendencies" you may be putting the cart before the iron horse, so to speak. To a large extent the public still thinks of RR management as a bunch of mustache-twirling Snidely Whipla***ypes (and so do I on bad days). But what we've got to remember is that, like most cyclical businesses, RR's are run by FEAR. They will always go with the done thing to make planning more logical and sequential and profits more predictable, if possible. That's why they tend to the monopolistic and sucking up to gov't whenever possible. (That's why I am anti- any more mergers.) Thus there is almost a cultural mis-match between a public that thinks RR's are EVIL and the RR management itself that thinks it is an example of prudent stewardship!

But since RR industry is cyclical, dependent on phases in the industrial, agricultural and chemical cycles and to a much stronger degree than before to our interaction with other countries' economies, it is well that the RR's do not overspend. "Beware the perpetual trend," as economists would say. If your gasoline went up a dime a gallon last week and is going to go up a nickel a gallon next week, does that mean by Christmas, you'll be paying $4.80 a gallon? No, no more than a RR's having twenty percent more business and/or profit in 2004 than 2003 determines that the rampant trend will continue into 2005 or 2006. Foresight and daring go together: that's why it pleases me that the CP/Western mainline and former SP/El Paso to CA are laying double-track now. (Although, even without cash subsidies, you can be sure their two respective federal governments said it was pretty OK by them.)

I vibrate very well to your observation that free-market tendencies in the US are often ostensible at best. Observe, for example, that in the last 40 years of "urban renewal," it's usually only the second- or third-worst properties that get torn down because the very worst are in unappealing locations. Frequently (Frankfort, KY is my example), businesses are closed and buildings destroyed because all levels of government are, in effect, banishing free enterprise to make room for corporate welfare "capitalism."

So the local rooming house or something that might have made a Motel 8 gets blitzed and a new Marriott or Holiday Inn or whatever moves in. Why shouldn't it? Subsidies guarantee a profit for the first few years. Then about ten minutes after these alleged "training wheel" subsidies expire, Marriott and company are leaving the premises and inviting a new kind of high-class urban blight in its wake. Part of the monopolistic tendencies you cite are that corporations always seek a monopoly, whether thru product differentiation, gov't muscle, whatever. Fortunately people both on this thread and another having to do with subsidizing subpar lines or passenger trains are much more wary than Americans in general used to be about government stepping in to "stimulate the economy" or "revitalize downtowns" or "shore up the infrastructure" or whatever the hell rationales are used to persuade us that gov't spending on private enterprise is a good idea.

But heck, I guess I'm preaching to the choir now. What I'd like to sincerely ask -- and to sway us back to the head topic a little quicker -- is what Class I's you consider to be the most "Snidely Whiplash" in their actions and which, if any, are more progressivistic in practice? Inquiring minds and all that . . .

[Anonymous]

1. It isn't the railroad industry that's cyclical so much as it is the degree of normally increasing demand for transporting products that is cyclical. Usually, you'd have to have a decrease in population before the transportation industry would ever experience a true decline in demand for their services. The reason railroads have lost business (the apparent "down" side of the observation you made) in the recent past is that they no longer wanted it, and the reason they no longer wanted it was because their business approach is rife with those nasty tendencies which I previously mentioned. Without that masochistic "safety net" invoked by the monopolistic playing fields, they would never engage in the practices of turning away business, rather they would aggressively go after that marginal business.

2. It is my belief that the public sees RR management as typical corporate types, who are ever tempted to cook the books and give themselves a huge bonus before they invaribly jump ship. There's more Enron in the railroad industry today than the traditional mustachioed villian of yore.

3. Therefore, in answer to your last question, there are no Snidely Whipla***ypes in the railroad industry, nor are there anymore Asa Whitneys or Ted Judahs. Rather, they are more of the soulless corporate raider types, whose major aim is to max profits short term for the benefit of the insider holdings and the foreign stockholders, after which they'll all take the money and run, leaving a run down rust pile, and the taxpayers of the nation will be left to hold the bag. When the megamergers came about, all the innovaters and forward thinkers were kicked out of the industry because they were just to "risky" to have around, and what remains is less than reassuring for the future of railroad transportation in this nation. What we have now is more representative of the current contributors to Railway Age magazine than to the past contributors to TRAINS magazine. There are no more David P. Morgans, no more John G. Kneilings, just a bunch of Larry Kaufman clones. That, indeed, is a sad state of affairs.

[Anonymous]

pt. 3: Dave, why specifically FOREIGN stockholders?

Al

[Anonymous]

QUOTE: Originally posted by smalling_60626

pt. 3: Dave, why specifically FOREIGN stockholders?

Al

I'll clarify:

Look at the ownership of the Class I's. Subtract the insider holdings, and most of what is left is owned by global investment firms. It is my opinion that the modus operandi of these global investment firms reflects what would similarly occur if the stocks were owned outright by non U.S. holders. Namely, squeeze out what you can in the short run, then after the property has been bled dry, sell out the remains and go to the next capital intensive American stock which is on its low ebb price wise. There is no attempt at truly reinvesting in expanding market reach, else we wouldn't even be talking about the retrenchment practices of the last two decades. Foreign stockholders tend not to be too keen on the idea of reinvesting the profits from U.S. companies back into the heartland of the U.S.

You have to remember, in a global market there is a good deal of "intangible" investment that really is a way to cover the backside of the primary investment. Let's go back to the grain trade for a moment. The U.S. grain grower competes with dozens of other major grain growing nations. The grain marketers of those countries are just as dependent on their rail systems as we are on ours. Look at Australia, a major grain shipper who competes for the Pacific Rim markets with the U.S. Their rail system is open access, and thus their grain shippers have access to competitive rate offerings (or at least the threat of other rail transporters moving in if the primary rail transporter[s] price their service too high). Thus, their farmers recieve a bigger share of the price the Pacific Rim nations are willing to pay than the American farmer who is held captive by one of the Class I's. In theory, the Australian grain shipper has more residual income to invest in the stock market than the American grain shipper. If the Aussie wants to in effect kill two bird with one stone, he invests part of his stock holding in the U.S. railroad, since the latter is aiding the Aussie's cause by minimizing the ability of the American farmer to compete with him. That way, he gets a better price for his grain via his own country's open access rail system and he aids in repressing one of his major competitors in the U.S. farmer, who otherwise may undercut the Aussie's price if the former also had access to competitive rail rates.

The same scenario occurs in the other grain growing nations, wherein the global investment in U.S. railroads serves to aid their own ideas of expanding their market base via the U.S. railroads practice of "differential pricing". The fact is differential pricing hurts the American shipper to the advantage of the American's foriegn competition, so anything these stockholders can do the keep that situation in place is something for which the stay abreast. Which is as good an explanation as any for why things are the way they are today in regards to U.S. railroad company practices.

[Anonymous]

Secondly, the characteristic of the double stack intermodal train operations favors imports over exports. It is so much easier pricewise to bring something into this country via rail than it is to take it out via rail. The Chinese just love our closed access rail system! They have competitive access to any containerline they want, and they can ship to any U.S. port they want, from which they can use any of the seven remaining Class I railroads to get their products to our consumer markets. There are no Chinese manufacturers who are held captive by a Class I. That experience is borne soley by U.S. manufacturers and producers. Yep, our railroads are really doing us a favor in terms of dealing with the trade deficit with the closed access system and differential pricing.

[daveklepper]

Yet, there is an expanding market and some technical innovation. The best example, and to me the most headsup railroad management, is NS with Triple Crown, and I hope that their expaning onto other systems, the UP's Twin Cities line, continues.

[Anonymous]

Actually, the U.S. is brilliant at exporting something the Chinese apparently want more than we do. It's called U.S. Dollars and it takes only a few keystrokes of electronic accounting to sell off our Treasuries to the Japanese on behalf of the Chinese; thus, we don't need stacks going westbound so much.

Dave, you are quite right in saying that "foreign investors" would tend to view the short-run profit over the long-haul gain, but then you subvert your own particularity by saying that domestic investors behave in substantially the same way; and you're right, they do.

I'm not sure therefore that there is any cheer in saying that my fellow American financiers can sell me and my countrymen down the river just as easily as those in other countries, but I do think you sloghed off some misland chauvinism with your recourse to "foreign" investors in one post and "global funds" in the following.

The biggest mutual funds in the U.S. are Fidelity Magellan and TIAA-CREF, both of which majorities are held by AMERICAN pension funds and AMERICANS investing for retirement. And so on with the majority of "international" or "global" funds like American Funds' Capital World Growth. As I said, cold comfort, but we ought at least to know that this country's economic footprint is being shrunk (if indeed it is) by our fellow Americans. The irony is we individuals often don't get much choice--if I am a militant nonsmoker I cannot keep TIAA-CREF from investing in Altria (holding company for Phillip Morris); likewise, it would be insane of me to refrain from drawing on all those mandatory contributions to TIAA-CREF I made as a teacher if no substitute is available.